Discounts on Hong Kong dollar forwards narrowed sharply on Tuesday as some players covered short (US dollar) positions ahead of keenly awaited testimony from Federal Reserve Chairman Alan Greenspan.
Dealers said they expected the US central bank chief to reiterate a "measured" pace of monetary tightening given that recent US economic data were softer-than-expected.
"Tonight, Greenspan may talk about interest rate issues in his testimony ... People think that the interest rate rises so far this year have not been as aggressive as previously expected," said a dealer from a European bank.
Meanwhile, the HK dollar was little changed against the US unit on Tuesday and trapped in its recent range.